Arabica rallied 270 points to 129.05 in a shortened month-end trading session, punching through the 130 line basis the 2nd month continuation for the first time since Jan 3rd when prices were in retreat from their mid-December high. London was closed for the day, leaving KC with an abbreviated 7:30 to 1:30 trading day, but one would not know it from the volume, which was at its best in 2 weeks, and at a high for implied out right trading since Aug 7th. FX was mixed and it seemed midday that a weakening BRL would find itself persuasive. With the BRL 1.5% wider on the doorstep of 4.50 again KC fell in sharp fashion to 125.25 before spec buying arrested the fall. After a brief period of chopping about around the 126 level, a steady bid aided futures higher in an unbroken fashion for the balance of the day. Brazil selling was noted as one would expect as FX adjusted KC prices traded to their all-time high again. Certs fell another 38,738 bags in post-settle reporting, bringing the total to 1,233,66 bags, the lowest since March 2000. The 360,963 bag draw for the month of August was the largest single month in data available from Bloomberg (beginning Jan 1995). Z/H closed -0.75, 25 points stronger, while the 1 year Z/Z settled -3.96, +.65.
Arabica traded a predictable day in its inputs if wildly unpredictable in path on its way to a 122.35, +.25 settle. KC was quiet early, suffered a sharp sell-off on a near 500 lot clip of volume while the US slept, and crept cautiously higher ahead of Fed Chair Powell’s 9:10am Jackson Hole Symposium address. Via Morgan Stanley Research, “In a unanimous vote, the Fed adopted a new policy framework that "seeks to achieve inflation that averages 2 percent over time". As a result, "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." That was in line with what we expected – a flexible average inflation targeting framework that avoids setting a formulaic time-horizon over which the Fed seeks to average 2% inflation, but emphasizes that the Fed will target an inflation overshoot in recoveries following inflation shortfalls during downturns. Also in line with expectations, the Fed dropped specific quantitative targets for maximum employment. ” The Dollar initially reacted as expected, trading a new low and bringing coffee & the commodity complex higher, yet counterintuitively it all quickly unraveled. The dollar went positive, commodities sold off in near unison, and KC fell as low as 118.90. Sugar turned higher first, and by 10:15 Arabica had not only stabilized, but began a nearly unbroken march higher. Ags as a basket were the strongest performers amongst commodities with cotton the lone BCOMAG component trading lower at the end of day. The resilience of KC was notable as it was yesterday in that it did not irretrievably roll over when presented the chance to, a marked difference from much of the last couple years trading. Spreads were mixed with ZH a tick higher at -1.35 and ZZ 35 weaker at -4.95 as the yield closed right around 4%. Certs fell 19,228 bags, all but 275 of them in Antwerp. Pendings rose ever so slightly to 3915. Robusta was not as spirited, falling $22 to 1405. Certs rose 300 tons on a fresh conilon grading as inventory draws overall have moderated in the past 2 weeks with gross increases of 480 tons of conis mixed in.
Arabica lost 85 points in a mixed day of trading, settling 122.10. The days of tedium in the coffee market are well in the rearview as today’s session left plenty to chew on. Futures leapt higher on the open as KC broke out of the triangle, key moving averages crossed, and another good sized cert draw was reported. Prices consolidated in positive territory during the overseas session before peaking at 127.35(+4.40) just past the 8am magic hour. Spreads tightened in kind (the 1 year yield peaked at 1.3%) and it appeared that the shorts were at risk even as prices hit all-time highs, BRL adjusted, and Brazil was a motivated seller. It was Brazil in the end that capped the move and sent futures into negative territory, but it was more the FX proxy trade than effective origin hedging. President Bolsonaro announced he would not be sending the Renda Brasil (social plan) to congress as expected, which markets took as a negative cue for the FX. While the selloff brought KCZ back inside the pennant and could be seen as a failed breakout, overbought indicators backed off by end of day, trend strength was maintained, and what was an opportunity for a spiral lower found little follow through, perhaps appropriate in the uncertainty given the dual directional risk in coffee. Volume was sizeable, particularly for a late summer session post FND, and heavy trading was noted in Z/H which closed -1.40, 10 points higher, on 9804 lots. The active spread’s bid / ask was thin throughout the day, often falling to double digits, which made the volume and relative lack of change all the more impressive. Certs were fascinating when one looked under the hood of the mere 373 bag decline that obscured a pretty incredible amount of position jockeying. 6816 gradings passed, 4064 failed, pendings fell to 1600 and none of it was apparently Brazil. Hondurans built 6069 bags in Antwerp, the only increase on the table, yet were below the total approved. Both Ugandans and Rwandans disappeared in Antwerp - unlikely candidates for regrading given zero have been put up to the board YTD - and NY shed 4842 bags; 749 Sals, 826 Hondos, 2192 Mex, 1000 Nics, and 75 Ugandans. Robusta fared better, extending its run of new highs, gaining $6 to close 1427. OI in U remains stubborn, 3119 lots entering the day. 14 deliveries were made between the same commission house. U/X closed at 94, a tick off the high, on 405 lots of volume.
Arabica gained 35 points to 120.15, giving back the bulk of its early gains yet remaining in the green. The COT and structure both added some confidence to the buying, indicating a continued if modest interest on the specs behalf to add longs, while 2021 spreads are seemingly pricing a tighter supply picture than the narrative suggests. The FX again was a primary driver as the Dollar weakened until around 8am EDT and the BRL opened up 1% stronger before both lost their positive KC mojo over the following couple hours, taking KC lower with them. Certs fell 19,048 bags overnight, while pendings declined 9718. Gradings saw only 1510 bags out of the 9718 pass. Destocking took place in Antwerp (11,709 Hond, 3497 Mex) and Houston (4019 Hond, 1333 Peru). This would seem to suggest regrades or stale spot coffee rather than a Brazil trial balloon. Robusta notices go out tomorrow morning and should make for an interesting read. OI came into the day at 5439 lots, yet only 2519 traded (+ a mere 10 AAs). U/X closed +92, 21 higher on the day, and it remains to be seen if any of the long rumored conis show up as the exit.
Arabica traded a reasonably quiet session, settling down 40 points at 118.95. With notices out tomorrow, U/Z was perhaps the most interesting trade of the day, settling -0.40, up .50 points, while trading an intraday high of +0.35 (U over Z). The 4526 spreads, 1967 EFPS, and other assorted odds and ends would seem likely to clean up the 5781 lots of OI entering the day, however it rarely works out that way. The trading was orderly with access to milds, even those of a certain age, remaining prized. Futures were fascinating even with a fairly low volume, low volatility session in the books. KC was strong early, trading in positive territory even as the BRL weakened out to 5.66 before BCB intervention put the brakes on the FX atrophy, and the DXY strengthened. As KC began to stumble, the dollar began to weaken and the BRL proved to be the more important currency cue. Ultimately the BRL recouped much of its losses on the backs of a morning US$590M spot auction, 12,000 FX swaps rollovers, and a second US$550M spot auction post-KC close. The day was fairly quiet FX and FND concerns aside, with volumes sliding by nearly a third across most measures vs Wednesday, structure tightening a modest 30 points on the 1 year curve in small increments, and certs declining 748 bags with pendings unchanged. Robusta was similarly uneventful with X settling a dollar higher at 1385. U/X remains historically elevated, settling $5 stronger to +72 after peaking at +79 intraday.
Arabica shook off a sluggish start, gaining 100 points to settle 117.45. Early returns were predictably soft as traders reacted to the emergence of new pending gradings and a second week of net long speculative positioning on the COT, even as futures fell by the Tuesday cutoff. However, commodity flows boosted the board again as the Dollar renewed its downside trek, falling .27%, and generally low volumes in context of recent trading days aided futures higher. Cold, wet weather made an appearance in some forecasts and while the trade generally shrugged, it is possible some may have found a buying impetus in the forecasts. Certs fell another 21,552 bags after the close with nothing yet graded. Z/H tightened a tick to -1.95 and CSO’s in that contract dominated the option board. 850 Z/H -2.50 Puts led the tally followed by paper demand for the ZH 0.00 Call, 750x. Robusta fell $6 as well, closing 1378 on the day. U/X remained firm at +62 with spot OI a strong 15,166 lots. A range seems to be forming between 1325 and 1400, prices only exceeded 3x since July 22nd’s breakout.
Arabica continued is descent, falling 170 points to 113.60. Day 3 of the index roll saw a notable uptick in volume driven in large part by the spreads where U/Z traded in 45 points to -2.25. Certs fell another 20,145 bags for an August to date total 177,569, yet so far the market has dismissed the outflows as being a key driver. While traders have been disciplined waiting for price to come back around the expected re-calibrated lower end of a would be range, size paper interest (2k+) in the Z 150 C was taken by the market as a sign of potential upside bets starting to filter in. A note of caution was the MACD cross lower and debates over the destiny of Brazilian semi-washed that overhangs everything. Robusta fell $20 to 1337, trading a lower low, lower high, negative close. U/X continues to climb, gaining $12 to settle +46 (+49 high). First notice day remains 2 weeks distant, leaving plenty of time for that trade to reach its ultimate resolution.
Arabica futures caved 445 points, closing 118.95, the lowest price basis KCZ in 6 trading sessions. Early returns were muted if positive, and prices took one last look higher, peaking at 125.75 at 9:16 edt, moments before the selling arrived. Less than an hour later aggressive selling had sent futures tumbling to an off-the-moment low at 119.55, a 620 point loss in less than an hour, before recovering back above 122. No further upside would be gained however as the 118.40 low traded going into settlement, finally settling at 118.95. The balance of the day kept the market within a 100 point range with last print only .45 points higher. Spread volume came in shy of yesterday but was still prominent at 32,437, on the last day before the Index roll begins. U/Z traded 15,766 times with it tightening 30 pts from yesterday’s high before backing off with the rest of the market, settling down 10 pts at -1.95. Certs continued to fall, losing another 20,797 bags (Antwerp) with US Stocks remaining unchanged and no new pendings. Robusta followed suit with KC losing $9 at 1353 with U/X falling $2, settling at +15 as it still remains in backwardation.
An absolutely massive day in coffee trading in all senses except for settlement as the active KCZ closed 123.40, -.05 and the prompt KCU 50 points stronger at 121.55. Dec futures traded in a 655 point range that felt larger, capped on the 61.8% retracement of the 1 year range basis KCZ. What had been a steady climb through the day, consistently taking out chunks of Brazilian and other selling dramatically reversed course just after 11am, trading the entirety of the range over the follow hour with scarcely a moment of recovery. Aggregate futures volume was 101,574, or 106k+ including EFPs and EFSs, the largest going back to February 11th and the 30th largest on record. Spread totals were also large, totaling 43,554, as was outright trading in the 2 most active contracts, both of which came in at their heaviest since we began tracking these in late March. Spreads were on the move again as U/Z rallied 55 points to -1.85 and Z/Z gained 20 to -4.40 even as Z/H backed out 2 ticks to -2.00. While reports of Brazilian coffee trading at tenderable levels (in both markets) continue to flow in, the structure seems to be discounting the likelihood of it being a lasting remedy. Certs fell another 14,603 bags overnight with no new pendings, and much of the conversation was around the likelihood of the coffee reappearing as future regrades. Late July pass rates appeared to be declining from the YTD average, however the publication of the months grading summary suggested that appeals were mostly successful for an effective 79.53%, with color failures being the bulk of the issue. Robusta fell similarly off its perch, closing 1379 -25 basis U, $87 off the intraday high and only $3 off the low. Spreads remained in backwardation, yet U/X lost $1 to close +17 after peaking $30 higher midday. The U/U arb closed at a recent high of 59c.
Arabica posted another standout day, rising 295 points to 123.45 in the active December contract. While OI has flipped to the 2nd contract ahead of Friday’s index roll commencement, outright volume remains nearly 3x in the front KCU, reflecting the remaining cleanup that needs to be managed nearby. The 123.25 / 123.70 gap basis KC2 was nearly closed, with today’s high of 123.60 leaving 2 ticks to be retraced. Combined oscillators, while still extremely overbought, backed off slightly from their max reading, and on the KC2 or KCZ chart coffee now has a 10th consecutive day of higher highs, higher lows, with only 3 negative final prints mixed in. Settle to settle from the night prior to the break out futures have gained 1995 points over those 2 full trading weeks. Spreads were the story again, as U/Z gained 20 points to close -2.40, while Z/H and H/K weakened 10 and 5 respectively. The Z/Z settled 60 points stronger at -4.60. Certs fell a precipitous 49,949 bags, the largest 1 day draw since Feb 17, 2012 and the 13th largest going back to 1995. Two day cert draws for August are nearly equal to the entirety of July’s reductions. If these remain out of the stock rather than being regraded it should help further the debate between cert relevance vs total balance sheet for the market in the coming days and weeks. Meanwhile, Robusta served as a catalyst for the day as U/X traded as high as +23 before closing +18, a second consecutive day of backwardation. Unlike yesterday both the spot and 2nd months gained, RCU closing 1404, +53 and RCX 1386, +36. The destiny of Brazilian coffee in both markets that has traded at tenderable equivalent to the exchange remains at a position of prominence in trader debates.
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